Borders UK on brink of collapse

Borders UKwill fall into administration unless a last-minute buyer emerges to rescue the bookseller.

Borders appointed Clearwater Corporate Finance to advise on a potential sale, but there has been limited interest in the store portfolio. One person close to the company said management was likely to appoint administrators before the end of the week.

Established in the UK in 1998, Borders has struggled to compete with online retailers such as Amazon and supermarkets with their aggressive discounts.

Borders' management was in talks yesterday with HMV, the owner of Waterstone's, but people familiar with the matter said the entertainment retailer was only interested in a small number of storesbecause it has outlets in a number of the same locations.

Borders' flagship shop in London's Oxford Street was sold to New Look, the fashion retailer, in July.

The "assets and trade" of Borders were advertised for sale in the Financial Times' classified section last week, described as "a strong retail proposition with one of the most comprehensive ranges of books in the UK".

On Monday the company ceased taking online orders, just before what is typically the busiest trading quarter of the year for retailers.

The company has been hit by a withdrawal of some of its credit insurance, leading to some publishers, including Random House, to cut off stock because of fears that the company will go under.

Nick Hood, senior London partner at Begbies Traynor, the insolvency specialist, said Borders' difficulties reflected a fundamental problem with the viability of the business.

"This is not the fault of the credit insurers - this is a business that wasn't creditworthy. The core market is slipping away online, while at the bestseller end, Borders is competing with supermarkets such as Tesco. That's not a game a 45-store book retailer can win," Mr Hood explained.

The person close to the company said that if Borders was placed in administration some stores would close immediately, while others would carry on for a few weeks to run off stock or to try to find a buyer.

Borders was bought from Borders Group, its US parent, for £10m in 2007 by Risk Capital Partners, the private equity group controlled by Luke Johnson, the entrepreneur and Financial Times columnist. Mr Johnson resigned from Borders on July 16.

Philip Downer, chief executive, led a management buy-out of the group, backed by Valco, the private equity arm of Hilco.

Accounts filed at Companies House show that in the year to February 2008, Ernst & Young, the auditor to Borders, raised doubts as to whether the retailer could continue as a "going concern" due to the highly competitive sector and the difficulty of forecasting sales performance.

Borders UK's pre-tax loss widened from £10.3m in 2007 to £13.6m last year.